According to the document, the IMF praised El Salvador’s rapid economic recovery from the Covid-19 pandemic, but has reservations about the use of BTC as a currency. For board members, cryptocurrency presents the financial risks and liabilities created.
“We emphasize that there are major risks associated with using BTC for financial stability, financial integrity and consumer protection, as well as the associated tax liabilities,” the IMF said.
Directors agreed on the importance of driving financial inclusion and noted that digital means of payment – such as Chivo Wallet – could play this role. However, they emphasized the need for strict regulation and oversight of the new ecosystem.
BTC Bond Tax Risk
Some directors also expressed concern about the risks associated with issuing BTC-backed bonds. As the country’s government revealed in November, the new bonds are expected to put up to $1 billion in the Salvadoran Treasury.
However, several rating bodies, such as Moody’s, criticized the stance. According to these critics, the volatility of BTC and the nature of the bonds can increase the risk of defaults. Therefore, the country’s sovereign risk would tend to increase.
Finally, the directors also called for the BTC Law passed in September to undergo profound modifications. In this regard, they recommended the government of Nayib Bukele to “restrict the scope of the BTC Act by removing the cryptocurrency’s legal tender status”.
In November, shortly after the BTC City announcement, the IMF staff said that BTC should not be used as legal tender in El Salvador. At the time, however, the criticisms were less incisive and only asked for the regulation and supervision of the new ecosystem.
About the BTC Law
El Salvador first adopted BTC as a legal tender in September 2021, through President Nayib Bukele. After the law was passed, the CEO became one of the main advocates of using BTC.
According to their data, the adoption of BTC served to give financial access to more than 67% of the population within a few months. In other words, the use of cryptocurrency served as an important tool for financial inclusion.
Along with day-to-day adoption, the country has been accumulating BTC in its sovereign reserves. Last week, Bukele announced the purchase of an additional 410 BTC, increasing his total reserve to over 1,500.